TARP Inspector Says Taxpayers Still in the Hole

NEW YORK (TheStreet) -- The U.S. Treasury Department's own Inspector General for the Troubled Asset Relief Program, or TARP, on Wednesday contradicted a previous Treasury statement that the bank bailout program was profitable.

In its quarterly report to Congress, the Special Inspector for TARP said "It is a widely held misconception that TARP will make a profit. The most recent cost estimate for TARP is a loss of $60 billion," adding that "taxpayers are still owed $118.5 billion (including $14 billion written off or otherwise lost)."

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This directly contradicts a statement by the Treasury in late March, after the agency took losses of $48.8 million after its decision to auction its preferred shares in six banks owing TARP money at a discount, that it had "recovered $260 billion from TARP's bank programs through repayments, dividends, interest, and other income - compared to the $245 billion initially invested," so that "each additional dollar recovered from TARP's bank programs is an additional dollar of profit for taxpayers."

Of course, the biggest TARP recipient was American International Group (AIG) , which received $40 billion in TARP money in November 2008, followed by another $29.8 billion in April 2009, but actually received over $170 billion in aid through TARP and from the Federal Reserve. With TARP preferred shares having been converted to common shares, the government is planning to fully divest its roughly 70% position in AIG's common shares by the end of this year.

After the $700 billion bailout plan was approved by Congress and President Bush, TARP began with then Treasury Secretary Henry Paulson meeting in October 2008 with the top executives of eight of the largest bank holding companies and making it clear that they would need to cooperate in the government's decision to provide bailout funds and take preferred stakes in the banks, even if the executives didn't think the bailouts were yet needed.